FWD Group’s parent, PCGI Intermediate Holding Limited (“PCGIIH”), announced on 17 June 2021, a proposed initial public offering (“IPO”) for American Depositary Shares (“ADSs”) representing its Class A ordinary shares in the United States.
In order to centralise the treasury functions of FWD Group Limited (“FWDG”), FWD Limited (“FWDL”) and PCGIIH, it is proposed that the outstanding indebtedness of FWDG and FWDL be either (1) transferred to PCGIIH (2) and/or prepaid, (3) repaid or (4) refinanced.
Accordingly, noteholders of FWDG and FWDL are invited to consent to the proposed changes of the terms and conditions for the relevant securities. Here is a brief summary of the proposal and we will provide our recommendation to noteholders in this article.
Background
PCGIIH is the parent entity of FWD Group and is owned by Richard Li, one of Hong Kong’s wealthiest tycoons. PCGIIH has a 72.68% stake in FWDG and FWDL, making it a major shareholder of the FWD Group. For more information about the group structure, kindly refer to our earlier article - “FWD Group: tycoon Richard Li's insurance empire offers bonds in excess of 5%”
PCGIIH has submitted its intent with the U.S. Securities and Exchange Commission (“SEC”) for the listing of American Depository Shares (“ADS”). However, the amount of ADS offered and the price range for the IPO have yet to be determined as the SEC has yet to complete its reviewing process.
Financial highlights
The FWD Group had been on a buying spree as it was trying to grow its insurance empire at the fastest pace possible. PCGIIH doubled its total revenue from USD 4,688m in 2018 to USD 9,487m in 2020. However, the insurance giant is loss making as it incurred more expenses than its top-line and reported a net loss of USD 252m in 2020 and a net loss of USD 196m in 2018.
Total equity increased from USD 4,023m in 2018 to USD 8,225m but adjusted equity, which excludes the amount of perpetual securities increased from ~USD 3,026m in 2018 to ~USD 6,618m in 2020.
We believe that the group has a sound liquidity profile. The group’s cash position of USD 2,730m is adequate enough to cover its USD 274m of borrowings due in 2021, USD 1,960 of borrowings due in 2022 and USD 250m FWDINS 6.250% Perpetual Corp (USD), which is callable in January 2022.
FWDG has maintained high solvency ratios in spite of its weak earnings. FWD Life Insurance Company (Bermuda) Limited, FWD Life Insurance Public Company Limited and FWD Fuji Life Insurance Company, Limited had solvency ratios of 290%, 436% and 1,151% respectively. Total available capitals for the companies are also well above their regulatory minimum capital requirements of 442m, 397mm and 212m.
Summary of the Proposal
Table 1: Relevant Securities under the CSE
|
ISIN |
Outstanding amount |
Early consent fee |
Expiration time consent fee |
|
|
FWDGRP ZERO Perpetual Corp (USD) |
XS1628340538 |
USD 750m |
0.3% |
0.1% |
|
FWDGRP 6.375% Perpetual Corp (USD) |
XS2038876558 |
USD 600m |
0.3% |
0.1% |
|
FWDGRP 5.750% 09Jul2024 Corp (USD) |
XS2022434364 |
USD 900m |
0.3% |
0.1% |
|
FWDINS 6.250% Perpetual Corp (USD) |
XS1520804250 |
USD 250m |
0.15% |
0.05% |
|
FWDINS 5.500% Perpetual Corp (USD) |
XS1748857379 |
USD 200m |
0.45% |
0.10% |
|
FWDINS 5.000% 24Sep2024 Corp (USD) |
XS1106513762 |
USD 325m |
0.45% |
0.10% |
| Source: Company. | ||||
In respect of the CSE, noteholders who submit voting instructions in favour of the extraordinary resolution on or prior to the early consent deadline of 11:00 p.m. (Singapore time) on 30 Jun 21 will be eligible to receive the early consent fee (see Table 1), which is expressed as a percentage of their principal amounts.
Noteholders who submit said instructions after the early consent deadline but on or prior to the expiration time of 11:00 p.m. on 6 Jul 21 will receive the expiration time consent fee instead. If the CSE goes through, FWD Group will pay the relevant consent fee to eligible bondholders within five business days following the noteholder meeting on 9 Jul 21. To implement the proposal, FWD Group and PCGHII will require majority of the votes cast representing not less than 75% of the principal for each security to approve the extraordinary resolution.
The CSE invites noteholders to approve amendments to substitute all of FWD Group’s existing notes with PCGIIH as the issuer. This means that holders of the notes will instead be holding securities issued by PCGIIH. As such, PCGIIH will be become the obligator of the indebtedness of FWD Group. We view this request positively as PCGIIH has sufficient liquidity and a sound balance sheet.
Among the proposed changes, the CSE is seeking to amend the cross-acceleration threshold of both FWDGRP 5.750% 09Jul2024 Corp (USD) and FWDINS 5.000% 24Sep2024 Corp (USD) from USD 10m to USD 20m. The increase in cross-acceleration threshold will provide PCGIIH more flexibility in terms of managing its debt as the threshold to be deemed default is raised.
Upon implementation of the proposals, Moody’s and Fitch will assign PCGIIH a long-term issuer rating. Currently, FWDL has a long-term rating of ‘Baa3’ by Moody’s and ‘BBB+’ by Fitch. It is expected that upon completion of the debt restructuring, the long-term rating of PCGIIH will be equal or higher than FWDL.
It is expected that PCGIIH will be renamed FWD Group Holdings Limited prior to the expected initial public offering. PCGIIH will also issue shares to the non-controlling shareholders in exchange for their holdings in FWDG and FWDL. Consequently, FWDL and FWDG will become wholly-owned subsidiaries of PCGIIH.
Recommendation
We recommend noteholders to vote in favour of the CSE. The potential IPO from PCGIIH is expected to provide additional capital to the company. By centralising its treasury functions, PCGIIH will be able to restructure its debt in order to better manage its indebtedness and business operations in order to meet its repayment obligations. Furthermore, by increasing the cross-acceleration threshold of its 2024 notes, it will provide PCGIIH more flexibility in managing new and existing debt and lowering its probability of defaulting.
Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a NIL position and the analyst who produced this report holds a NIL position in the abovementioned securities.
Our podcast series, Yield Hunters, is available on Spotify and iTunes Podcasts and Google Podcasts. We share our thoughts on new bond issues and hold discussions on the fixed income space. Listen to our latest episode below and follow us!
All materials and contents found in this site are strictly for general circulation and informational purposes only and should not be considered as an offer, or solicitation, to deal in any of the funds or products found/identified in this site. While iFAST Financial Pte Ltd ("IFPL") has tried to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies and typographical errors. Any opinion or estimate contained in this report is made on a general basis and neither IFPL nor any of its servants or agents have given any consideration to nor have they or any of them made any investigation of the investment objective, financial situation or particular need of any user or reader, any specific person or group of persons. You should consider carefully if the products you are going to purchase are suitable for your investment objective, investment experience, risk tolerance and other personal circumstances. If you are uncertain about the suitability of the investment product, please seek advice from a financial adviser, before making a decision to purchase the investment product. Past performance is not indicative of future performance. The value of the investment products and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. In respect of any matters arising from, or in connection with the said research analyses or research reports, recipients of the report are to contact IFPL at 10 Collyer Quay, #26-01 Ocean Financial Centre Building, Singapore 049315, or by telephone at +65 6557 2853. Where the report contains research analyses or research reports from a foreign research house and if the recipient of such research analyses or research reports is not an accredited investor, expert investor, institutional investor or an ex-accredited investor, IFPL accepts legal responsibility for the contents of such analyses or reports to such persons only to the extent as required by law. Please note that only certain security(ies) herein are available to all investors, while the rest are only available for certain persons to invest in, such as Accredited Investors (as defined in the Securities and Futures Act) or one who invests at least S$200,000 (or its equivalent currency) per transaction. To qualify as an Accredited Investor, one needs to submit a declaration form and certain relevant supporting documents, according to iFAST’s prevailing policies and procedures.
Please read our full disclaimers on the website at ( https://secure.fundsupermart.com/fsmone/policies/328125/investment-account-terms-&-conditions).
iFAST Financial Pte Ltd (IFPL) (registered address: 10 Collyer Quay #26-01 Ocean Financial Centre Singapore 049315, Telephone: 6557 2000) holds the Financial Advisers Licence issued by the Monetary Authority of Singapore ('MAS') to conduct regulated activities of advising on securities, marketing of collective investment schemes and arranging of any contract of insurance in respect of life policies, other than a contract of reinsurance and the Capital Markets Services Licence issued by the MAS to conduct regulated activities of dealing in securities and providing custodial services for securities. While IFPL has made every effort to ensure the independence of the report's contents, IFPL's nature of business is such that IFPL and its connected and associated entities together with their respective directors, officers and staff may be involved in providing dealing or investment-related services in the abovementioned securities, and have taken or may take positions in the securities mentioned in this report, and may also act as the principal for any buy or sell trades.
Please note that only certain bond(s) herein are available to all investors, while the rest are only available for certain persons to invest in, such as Accredited Investors (as defined in the Securities and Futures Act) or one who invests at least S$200,000 (or its equivalent currency) per transaction. To qualify as an Accredited Investor, one needs to submit a declaration form and certain relevant supporting documents, according to FSM's prevailing policies and procedures. Please read our full disclaimers in the website.